Classical and Keynesian Models of Macroeconomy

What do you need to calculate in order to determine the marginal propensity to consume?

• The change in consumption divided by the change in disposable income.

• The change in income divided by the change in consumption.

• The change in consumption divided by the change in real GDP.

• The change in consumption divided by the change in savings.

As income rises from $50,000 to $60,000, consumption increases from $40,000 to $48,000. In this case, what is the MPC?

• 0.20

• 0.80

• 0.10

• 0.90

What do classical economists believe?

• The economy is self-correcting.

• The economy needs fiscal policy.

• The economy gets stuck

• Inflation is necessary.

• Wages are sticky.

According to the basic classical model, an increase in the money supply will cause

• employment to increase.

• output to increase.

• the price level to increase.

• investment to increase.

The classical model was the first to attempt to explain all of the following, EXCEPT:

• Consumption

• Keynes

• Investment

• National levels of real GDP

Which of the following is not a factor that influence aggregate demand?

• Government Spending

• Consumer Spending

• Net import spending

• Investment Spending

The _______________ aggregate supply curve is vertical or perfectly inelastic, with respect to the price level.

• Short Run

• Classical

• Demand

• Long Run

Which of these factors does not cause a downward -slope in the aggregate demand curve?

• Expectations

• Liabilities

• Government

• Interest Rate Effect

Which of the following would shift the aggregate demand curve to the left?

• An increase in exports

• An increase in investment

• A decrease in government spending

• An increase in government spending

The Keynesian assumption is a convenient analytical short cut and turns out to be a rather accurate description of the reality. What does it assume?

• Constant prices

• Firms cannot reduce fix costs

• Output is predetermined

• The interest rate stimulates growth